Greenlight sues Apple, with eye on cash pile

February 7, 2013

People walk past the Apple Store at Grand Central Terminal in New York on January 25, 2013. US hedge fund Greenlight Capital Thursday filed suit against Apple as it boosted pressure on the tech giant to unleash to shareholders the value of its huge capital stockpile.

US hedge fund Greenlight Capital Thursday filed suit against Apple as it boosted pressure on the tech giant to unleash to shareholders the value of its huge capital stockpile.

Greenlight sued the maker of iPhones and iPads to block a shareholder vote that includes a proposal, supported by management, to make it impossible for the Apple board to decide to issue preferred stock.

The hedge fund alleged that Apple violated US securities policies by "bundling" the proposal on preferred stock with two other shareholder-friendly measures.

Doing so forces shareholders to accept or reject all three measures together, rather than separately, which Greenlight says violates a Securities and Exchange Commission rule.

More broadly, Greenlight argues that eliminating Apple's power to issue preferred shares would restrict Apple's ability to return value to shareholders.

"Like many other shareholders, Greenlight is dissatisfied with Apple's capital allocation strategy," Greenlight founder David Einhorn wrote in a letter to Apple shareholders.

"The combination of Apple's low (and shrinking) price-to-earnings multiple and $137 billion (and growing) hoard of cash on the balance sheet supports Greenlight's contention that Apple has an obligation to examine all options to create and unlock additional value," Einhorn said.

Greenlight is seeking to build support for its proposal that Apple issue a "perpetual preferred stock" that could carry, in Einhorn's suggestion, a four percent dividend, allowing shareholders to better share in its idle cash pile.

Such a "more shareholder-friendly capital allocation policy," Einhorn said in the letter, "would unlock hundreds of dollars of value per share."

Greenlight said it has held discussions with Apple, but the company rejected the proposal "outright" in September 2012.

Apple did not immediately respond to a request for comment.

Apply shares were up more than one percent at $459.50 in midday trade Thursday.

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5 comments

And why should hedge funds be illegal?? There serve a great purpose in our current markets, and their ability to bring pressure to firms they have stock in like Apple to share its revenue with it's investors speaks to greater good of those firms.

The real reason Apple has such big cash piles is because they are held overseas and bringing them back to the US would force the company to finally pay taxes on the money. Apple like many companies is waiting for a more favorable tax environment before pulling that money back.

But if you are an investor you should be kind of ticked off that the company has definite revenue and profits and refueses to share it with the share holders that make the company possible in the first place.

Or, better yet, make ALL shares "preferred", and then, instead of just being a place for "investors" to park their money tax free, all stockholdings would be subject to taxation of their earnings, and thus generate some revenue for the Treasury and stimulate real examination by investors of what constitutes an actual investment in the Economy, as opposed to a tax haven and lead to investment strategies which lead to jobs growth, instead of just providing the funds to enable Bain-style racketeering.

Preferred shares are offered at a premium to regular prices in an effort to raise money with a smaller risk profile.

say the company has stock priced at 100 USD. They want to raise money so they offer a preferred price offering to people who already own their stock. They will offer shares at 90 that are untradable in the market but will convert to normal shares after 2 years of holding time. At which time hopefully the stock has risen and your initial investment of 90 is worth say 125. And you can sell you new common shares. However nothing is free. if you did not chose to buy the preferred shares then the price of the stock will be diluted do to the new common shares being added to the market.

And if and when you sell those preferred shares you will have to pay taxes on the income.

@Caliban

All stocks allow you to park your money tax free.. you take risk in whether it will be worth the same when you sell and vs inflation. then you pay tax

please remember when you put money in a checking or savings account you earn real interest. And it is subject to taxation.

If you put your money into the stock market you pay taxes if you earn a positive return.

If you have a negative return you get to write it down as a tax deduction on other earnings.

The only the only place to park your money tax free is under your bed. where it earns you nothing. and begins to rot.

-- on preferred shares

they are not always offered to current investors,

Berkshire Hathaway invested a few billion in a company a few years ago as an investment. The company needed money. BH got preferred shares. If the company should go under -- preferred shareholders get paid back before common stock holders. They have PREFERENCE when it comes to debt repayment in case of insolubility.

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